It is widely believed that teachers are underpaid. To attract and retain more talented
teachers, it is said, state governments should raise their salaries.

It's a plausible argument, one made in A Nation at Risk and many other reports
in 1980s, and repeated in the recent report of the National Commission on Teaching and
America's Future. The need to act has seemed acute, given the large numbers of teachers
with poor academic records and weak knowledge of their subjects. To upgrade the work
force, most states boosted teacher pay substantially during the 1980s. On average,
inflation-adjusted teacher pay rose by 20% during the 1980's. In some states, the increases
were extraordinary: New Hampshire (36%), Virginia (35%), Connecticut (52%). By virtually
any measure, the pay of teachers relative to other occupations rose as well.

Was this money well spent? Did teacher quality improve? This is the question raised in Teacher
Pay and Teacher Quality, which begins with an empirical analysis of the effect that
salary changes in the 1980's had on teacher recruitment. The surprising finding: there was
virtually no relationship. The states in which teacher salaries rose little relative to
other occupations experienced just about the same change in teacher qualifications as
states that made a substantial effort to boost teacher pay.

Since this finding appears to defy standard economic theory as well as common sense,
the authors consider a variety of explanations. None of them (including weaknesses in the
data) accounts for their result. Rather, the explanation is to be found in the way the
teacher labor market functions.

States that have attempted to recruit better teachers by raising pay have used a blunt
instrument: across-the-board raises for all teachers, irrespective of merit. This has the
predictable consequence that quit rates fall and jobs become more difficult to find,
discouraging prospective teachers from pursuing that career. This effect is greatest for
those with attractive options outside teaching, who have the most to lose if they forgo
these opportunities to study education, then are unable to find a teaching job. By
contrast, persons with no professional prospects outside education will be less deterred
by a decline in teaching vacancies, since there will be little opportunity cost to meeting
the requirements for a teaching license.

Recruitment of better teachers is further impeded by the fact that public schools show
no preference for applicants who have strong academic records. Given public concern with
teachers' weak academic backgrounds and poor performance on tests, it is surprising that
applicants with strong academic records are not more successful in the job market.
However, school systems regularly overlook these signals of ability when hiring new
teachers. This is doubly unfortunate at a time when higher salaries have caused the number
of vacancies to drop: Just as public schools would seem to have their pick of the crop,
they fail to take advantage of the opportunity.

Which policies, then, might make a difference? School systems could differentiate
salaries on the basis of performance (or measured competencies), encouraging better
teachers without stimulating a general increase in teacher supply. Licensing requirements
could be relaxed, particularly for individuals who demonstrate promise in other ways.
Alternatively, standards for admission to teacher training or for a teaching certificate
could be raised. Unfortunately, numerous attempts have already been made to effect
most of these reforms- attempts which have usually been undermined by interest groups which
benefit from current institutional arrangements. The basic problem: Producer interests
have captured the regulatory apparatus by which states attempt to govern public education.

As a result, the authors see more promise in deregulating public education, relying
instead on competition and consumer choice to improve performance. Examination of
personnel practices in the private sector suggest that market-based reforms would improve
the quality of the teaching work force. Private schools place more emphasis on academics
and the recruitment of faculty who have strong academic records. They benefit
significantly from the opportunity to hire promising teachers who lack licenses. Private
schools and educational subcontractors who provide instructional services are also more
likely to differentiate salaries on the basis of performance and to dismiss ineffective
teachers. Personnel policies in public schools are thus a costly anomaly, not only in
comparison to other professional markets, but to the rest of the education industry as
well.